Trust Fund Recovery Penalty

Trust Fund Recovery Penalty

  • April 4, 2018
Trust Fund Recovery Penalty

Every business is expected to submit the necessary employee-related tax deposits to the IRS every year. If a business doesn’t pay these taxes, the IRS will issue a Trust Fund Recovery Penalty, so named because the money withheld doesn’t belong to the business but to the employee. If you are a business owner and you just received notice of this penalty, contact IRS Solver without delay.

Trust Fund Recovery Penalty

Employers are responsible for withholding employment taxes from their employees’ checks and pay these taxes to the IRS. If a business fails to deposit employment taxes on time, it will be issued a Trust Fund Recovery Penalty. This means that the IRS can seize the business owner’s assets in order to retrieve the money they are owed. This penalty also can’t be discharged in bankruptcy.

Trust Fund Liability Defense

The IRS is adamant about collecting payroll taxes from a business and can hold many parties responsible, which is why it is important to have a Trust Fund Liability Defense.

Trust Fund Recovery Penalty

The Trust Fund Recovery Penalty (TFRP) can be assessed against a person if the unpaid taxes cannot be collected from the business. This person is whomever is responsible and has the power to collect from the employee and pay to the IRS, and/or willfully fails to collect them or pay them.

Employment Taxes

Taxes falling under the scope of the TFRP typically are payroll taxes, social security, railroad retirement and collected excise taxes.

TFRP Process

You will have 60 days to appeal once you have received the IRS letter. Should you fail to respond, the IRS will proceed to assessing the penalty against you and send a Notice and Demand for Payment.

Trust Fund Liability Defense

When it comes to TFRP, the IRS will typically cast a rather wide net to make sure they cover all possibilities of recovering the unpaid taxes. It does not just concern the business owner or partners but can affect employees as well.

Employees who had no idea that payroll taxes weren’t being paid may use the willfulness defense.

Responsible Persons

Will be considered responsible any person who is involved in payroll management such as officers, directors, shareholder, bookkeepers, a third party payer, board member, or payroll service providers.

Willfulness Defense

The defense indicates that the employee(s) couldn’t have had any knowledge that payroll taxes weren’t collected or paid, nor did intentionally break the law by using the funds to other purposes (i.e. to pay other creditors).

About the Author Larry Heinkel J.D. LL.M

Larry Heinkel is a tax and bankruptcy attorney with more than 38 years experience helping businesses and individuals, solve their state and federal tax problems. Mr. Heinkel has been extremely successful in representing his clients before IRS and DOR, and is known throughout Florida as an expert in tax problem resolution.

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